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TAXATION OF THE SECOND BANK OF THE UNITED
STATES BY OHIO 1
After the expiration of the charter of the First Bank of the
United States in 1811 there was a great increase in the number of
state banks, especially throughout the West. In Ohio there were
four banks in 181 1 ; by 1815 the number had grown to twelve, and
in the following year nine additional banks were incorporated. 2
The charters of these early banks contained no clauses providing for
specie payment, and no penalty for suspension, while the power of
note-issue was apparently unrestricted. In 1817 additional banks
were incorporated, on which for the first time restrictions were im-
posed; thus in the charter of the Bank of Hamilton it was first
provided that the capital should be paid up in " money of the
United States " ; in that of the Bank of Gallipolis that a certain
amount of money, $20,000, half in specie and half in United States
bank-notes, should be on hand before the bank could begin business."
At best, however, the business of banking was new, there was little
past experience to guide either legislators or bank managers, and
many mistakes were made. 4 On the other hand, the conditions in a
1 In spite of its importance no complete or connected account of this event has
ever been written. So far as it has been discussed, it has been treated either as
an occurrence primarily of political interest (Turner, Rise of the New West, p.
300 ; McMaster, History of the People of the United States, IV. 497-504 ; King,
Ohio, p. 336) or of constitutional significance (Ames, State Documents on Federal
Relations, no. III., p. 5 ; Story, Commentaries, §1 1649-1655 ; Cotton, The Constitu-
tional Decisions of John Marshall, II. 84). By the people of Ohio who were
engaged in the controversy, however, it was regarded almost wholly as an eco-
nomic and financial question. In so far as they appealed to constitutional prin-
ciples they did so under the pressure of an economic situation and to justify
actions motived by these conditions. While of course such action was not excep-
tional, the appeal does not necessarily prove conversion to the principles invoked.
2 Albert Gallatin, Considerations on the Currency and Banking System of the
United States (Philadelphia, 1831), pp. 100-103. From the figures given by
Gallatin of banks which made returns and these which did not we may construct
the following table of the number and capital of banks in Ohio between 181 1
and 1830 :
Date
No.
of Banks
Total Capital
1811
4
$ 895.000
1815
12
1,434,719
1816
21
2,061,927
1820
20
■ ,797,463
1830
I I
1,454,386
* W. G. Sumner, History of Banking in the United States, p. 92.
*D. R. Dewey, Financial History of the United States, p. 144.
(312)
Taxation of the Second U. S. Bank by Ohio 313
new and undeveloped country, where capital was scarce and ex-
change slow, led to the undue expansion of banking credit, which in
those days took the form almost entirely of note-issues.
The numerous banks supplied an abundant circulating medium,
far in excess of the real needs of the community. The loose credit
system of selling public lands also led to bank-note inflation on the
part of the local banks ; and this was increased after the suspension
of specie payments in 18 14, 5 by the action of the federal govern-
ment in accepting state bank-notes in payment for the public lands
and other public dues. After the war of 1812, moreover, the
western country experienced a " boom " in which Ohio fully shared.
" Speculation, stimulated by every incentive, ran into wild and
extravagant excesses. Improvements of every kind, under its strong
propulsion, advanced with wonderful rapidity." 6 It was a period of
inflation, of speculation, and of rising prices, which must ultimately
terminate in a financial crash. Things were rapidly verging to this
state, when the branches of the Bank of the United States, which
had been chartered by Congress in 1816, were established at Cin-
cinnati and Chillicothe. These branches issued their notes in Ohio
to a very large amount, and as these were convertible they displaced
the issues of the local banks. Consequently there soon developed
strong opposition to the Bank in Ohio and also in other states.
Ohio had long been struggling against unauthorized banks, which
had flooded the state with depreciated paper, and against agencies
of banks chartered by other states, notably Pennsylvania and Ken-
tucky, whose notes, more depreciated than those of the Ohio banks,
were driving the latter out of circulation. 7 In the session of 1815—
1816, the legislature passed an act imposing a fine of $1,000 on all
persons acting as agents of any bank of issue chartered by the laws
of another state; the use of the courts and of the processes of
5 " The suspension of the payment of specie by the city banks, instantly raised
the demand for that article and excited a general distrust of bank paper. The
country banks were compelled to close their vaults in self-defence. But the banks
of Ohio were among the last to adopt this measure. Such, however, was the
confidence of the community in the banking institutions, that the shock to paper
credit was soon recovered, and paper passed currently as money, when it was
known that it would not at pleasure be converted into specie. An unlimited
confidence in bank notes soon diffused itself over the whole country, and banks
were originated upon principles as new as they were deceptive and mischievous.
An excessive issue of paper currency was the inevitable consequence." Rep. of
Com. on Taxing the Bank, House Journal, 1819, p. 395.
6 S. P. Chase, Ohio Statutes (Cincinnati, 1833), I. 42.
'An act of February 8, 181 5, provided that all contracts with persons or firms
issuing notes, without being authorized by law to do so, were to be void. Signing
or issuing such notes was made punishable by imprisonment for one year and a
fine not exceeding $5,000.
314 Ernest L. Bogart
justice were forbidden to all such agencies. 8 This, it will be seen,
was ten weeks before the establishment of the Bank of the United
States (April 10, 1816), and fourteen months before the organiza-
tion of the Cincinnati branch.
A year before the organization of the Bank of the United States
Ohio had begun the taxation of banks in that state. The quota of
the direct tax imposed upon the states by the federal government to
help defray the expenses of the war had been paid by Ohio out of
taxation, with only a temporary resort to loans. To raise this addi-
tional revenue the land tax was greatly increased and new sources
of revenue sought out. Among these latter was a tax of four per
cent, on its dividends on every banking company in the state. 9 In
this and subsequent acts relating to the local banks are to be found
practically all the provisions later included in the law taxing the
branches of the Bank of the United States, showing that the latter
was not an isolated act. If any bank failed to report, the auditor
was to levy one per cent, on the nominal capital of the bank; this
assessment was to be presented to the bank by the sheriff, and if it
was not paid at once, with four per cent, of the sum involved in
addition for the sheriff's fee, he was authorized to levy on the
specie and notes; if he could not find enough of these, he was to
seize any other property of the bank, advertise, and sell it. 10
In March, 181 7, a branch office of the Bank of the United States
was established in Cincinnati, and in the following October a
second branch was organized at Chillicothe, although it apparently
did not begin business until the spring of 1818. 11 This was done
" without any enquiry whether such a measure would, or would not
meet with the approbation of the constituted authorities of the state.
At the time that this office was established it was in direct violation
of the letter and spirit of a statute of Ohio, enacted before the Bank
of the United States was incorporated." 12 While the establishment
of the branch at Cincinnati seems not to have been opposed, 13 there
did exist statutes which might have been invoked against it. Nine
s Act of January 27, 1816.
"Act of February 10, 1815.
10 Cf. Act of February 8, 1819, taxing the branches of the Bank of the United
States.
11 House Journal, 1820-1821, p. no.
12 Rep. of Com. on Taxing the Bank, ibid., 1819, p. 399.
13 Cf. Minority Rep., ibid., 1820-1821, p. 391. This report explained the oppo-
sition which developed against the Bank as the result of the jealousy of local
bankers whose business was adversely affected. " A kind of village aristocracy
was erected in almost every town [by the establishment of local banks]. . . .
Prejudice, first excited by those who had been engaged in flooding the community
with an unsound currency, at length became quite general."
Taxation of the Second U. S. Bank by Ohio 315
months' experience with the Cincinnati branch seems to have per-
suaded the legislators that it was detrimental to the success of the
local banks, 14 and that, as it was not paying any taxes while they
were, it occupied a favored position. Accordingly, at the beginning
of the next session, on December 13, 1817, Mr. McMillan moved the
appointment of a joint committee to take into consideration the
propriety and expediency of taxing the branches of the Bank of
the United States, which then were or might hereafter be estab-
lished in the state. This was agreed to. 15 The committee reported
against the " expediency " of levying such a tax. The chief argu-
ment advanced by the committee was that the charter was a contract,
and that the constitution of Ohio provided that " no law impairing
the obligation of contracts shall ever be made". This report was
reversed by the house of representatives, 37 to 22. 16
A substitute for this report was then offered, January 19, 1818,
asserting the right of the state to levy such a tax, and the expediency
of doing it at that time. The constitutional right of the state to
levy such a tax was carried, 48 to 12, and the expediency of pro-
ceeding to levy the tax now, by 33 to 27. 17 Among the arguments
advanced in this substitute report chief reliance was placed, in assert-
ing the constitutional right of the state to tax the branches, upon the
fact that the charter of the Bank did not include exemption from
taxation among the privileges claimed ; that such immunity did not
generally attach to incorporated companies, such as the Bank was ;
and that, inasmuch as the state banks had paid bonuses for their
charters, any invasion of their charter privileges would be an im-
pairment of the state's contract with them. On the question of
expediency, the report concluded that "these branches must very
seriously affect the operations of the state banks " ; that " the capital
introduced into the country through these branches, is directly cal-
culated to wither our agriculture and cramp our manufactures " ; and
that they were " unquestionably a proper subject of taxation ". To
carry out the conclusion of the report a bill was introduced "to
levy a tax on the capital of the subscribers to the Bank of the
United States, employed in banking within this state ". After it had
been read a third time, on January 24, further consideration was
postponed until the second Monday of the following December, by a
M By a preamble and resolutions adopted in the house of representatives on
January 19, 1818, disapprobation of the establishment of a second office was ex-
pressed ; " but the directors seem to have regarded this expression as deserving
no consideration". House Journal, 1819, p. 400.
15 Ibid., 1817-1818, p. 90.
'"Ibid., pp. 144-146.
"Ibid., pp. 307-315.
AM. HIST. REV., VOL. XVII. — 21.
3 1 6 Ernest L. Bogart
vote of 31 to 28. 18 In the meantime, the committee was instructed
"to make certain enquiries concerning the effect produced by the
establishment and management, of the branches of the Bank of the
United States in Ohio, upon the paper currency of the state ". 19
During the summer of 1818 the committee sent out a circular
letter for information to the state banks and to the branches of the
Bank of the United States. The former answered, with few
exceptions, but the latter treated the request for information with
" contemptuous silence " without " even the forms of common polite-
ness ", though the president of the Cincinnati branch " verbally and
inoffkially " stated his willingness to give the desired information.
Nineteen of the state banks reported and five failed to do so. 20
From the data furnished the following table was compiled for these
nineteen state banks. 21
From data in the auditor's office the committee were able to
give the capital of the twenty-four banks in the state as $2,268,000,
the circulating notes as $1,336,000, and the specie as $450,000.
The whole amount of their demand liabilities very little exceeded
$2,000,000, against which they held a specie reserve of about 20 per
cent. Compared with the 12 per cent, held by the Philadelphia
banks on November 4, 1816, 23 the Ohio banks were in a safe though
not impregnable position. Some of the banks had, however, greatly
overissued their notes and these institutions felt keenly the competi-
tion of the Bank of the United States.
The notes of the Bank were convertible in coin, were alike in
character no matter by which branch they were issued, and were
M House Journal, 1817-1818, p. 360.
19 Ibid., 1819-1820, p. 393.
20 " It is much to be regretted that a false pride or an unfounded jealousy
should have prevented banks of undoubted solvency from making a report." Rep.
of Com., House Journal, i8i9~i8'2o, p. 407.
21 Ibid., 1819-1820, p. 405.
Debts Funds
Capital $1,668,688 Bills discounted $2,895,483
Notes in circulation 1,136,177 Specie 385,333
Due individual depositors ... 227,774 Ohio notes 121,936
Due Bank of United States. . 694,848 s Notes of other banks i35,55i
Due from banks 221,718
Real estate 6i,4°4
Total $3,727,487 $3,821,425
22 Three of the banks did not report the debts due from them to the Bank
of the United States, but the amount estimated by the committee has been
included. Other reports were incomplete in various items, causing a discrepancy
in the two sides- of the balance-sheet of about $100,000.
23 Rep. of Com., House Journal, 1819-1820, p. 408.
Taxation of the Second U. S. Bank by Ohio 317
pretty steadily maintained at par. Being equally good in all parts
of the United States they were much sought after for making
remittances. The notes of the local banks, on the other hand,
depreciated greatly at any distance from the issuing bank, were
often overissued in amount, and were not always redeemed in
specie. It was the practice of the branches of the Bank to present
the notes of the state banks, which accumulated in their hands in
the ordinary course of business, for redemption about once a week.
In such settlements the debtor bank must pay the balance in specie.
This practice provided an automatic test of the solvency of the local
banks, and forced them to keep down their note-issues to a reason-
able proportion of their capital, but these very facts caused them to
hate the agency by which such desirable reforms were effected. 24
Whether the Bank of the United States acted towards the banks
of Ohio " in a spirit of contempt and rancor " or not, the manage-
ment of the Bank was such as to involve the western banks gen-
erally in difficulties. Under the loose administration of William
Jones, the first president of the Bank, the capitals of the branch
offices were not fixed and they were permitted to extend their dis-
counts at pleasure, without any limitation in that respect. There
was moreover no restriction as to note-issues, and they could there-
fore issue their paper without check. This they did and conse-
quently piled up enormous loans. For instance, the Cincinnati
branch is stated to have discounted over $1,800,000 in June, 1818 —
an amount almost as great as the loans at Boston or New York. 25
By October 3, 1818, the total discounts of the two branches in Ohio
amounted to $2,494,000, although the whole banking capital of the
state did not exceed $2,300,ooo. 26 As a result of the loose man-
agement the Bank soon became almost bankrupt, and vigorous
measures were taken by the directors to secure its solvency. Among
other things they ordered the Cincinnati office to collect the balances
due from the Cincinnati banks at the rate of 20 per cent, a month. 27
These balances amounted on July 1 to over $700,ooo, 28 and by Oc-
24 The Committee on Taxing the Bank in 1819 charged that the branches of
the Bank of the United States had been established in Ohio without any capital,
and that they had accumulated this by draining the local banks of their specie in
the way described above. Moreover a large amount of local bank-notes had been
paid to the government for public lands and had accumulated in the Treasury
Department. " The directors of the Bank of the United States were soon apprised
of the amount of Ohio paper, held by the government upon deposit, and they
early made arrangements to convert it into a banking capital for themselves."
House Journal, 1819, p. 400.
25 R. C. H. Catterall,-77ie Second Bank of the United States, p. 34.
-"House Journal, 1819, p. 401.
"Order of July 20, 1818. Quoted by Catterall, p. 51.
28 Niles' Register, September 19, 1818, XV. 59.
3 1 8 Ernest L. Bogart
tober 3 had swelled to $974,ooo, 28 a sum which the banks were quite
unable to pay. As a result it was further directed by the orders of
October 30, that no further credits be given to the Cincinnati banks
until the balances already due were discharged. At the same time
the Bank drew upon Cincinnati for $50,000 and on Chillicothe for
$100,000 in specie. 30
Intelligible as these transactions were from the standpoint of the
Bank of the United States, which was striving desperately to
strengthen and save itself from bankruptcy, in Ohio they were
regarded as wilfully oppressive to the state banks. These latter
endeavored to reduce their debts, but succeeded only in inflicting
distress upon their debtors, who had neither specie nor notes with
which to pay. The Cincinnati banks protested therefore against
the action of the Bank of the United States as a " grievance un-
precedented ". The Bank could not afford to yield, however, and
instead of granting more favorable terms, prohibited the receipt of
the notes of these banks. This act brought about the suspension
of the three Cincinnati banks within a month, in November, 1818. 31
The attitude of the people of Ohio toward the branches of the
Bank of the United States may be inferred from the platforms of
the politicians in their appeals to the voters, for these are usually
such as will approve themselves to the people. In the fall election
of 1818, Col. John Sloane, a candidate for election to Congress from
Wooster, Ohio, issued an address to the electors in which he an-
nounced himself strongly opposed to the Bank. " The power to
create banks", he wrote, "not being granted [by the Constitution],
the law establishing the United States' bank, is unconstitutional, and
ought to be repealed." 32 A month later Niles printed a letter from
a citizen of Ohio, urging a tax on the branches of the Bank of the
United States as a means of protection to the state banks, 33 In his
"House Journal, 1 819-1820, p. 406.
30 Catterall, p. 53, n.
31 Catterall, p. 63. It was stated by Niles in December that " 2500 dollars,
per week, are required to pay the discounts on monies loaned by the branch of
the bank of the United States, at Cincinnati — the branch has scarcely any of its
notes in circulation, and Ohio has been drained of specie. It is a serious ques-
tion how these discounts are to be paid." " Many of those [the Ohio banks] that
were considered as the best banks in the state, have stopped payment." Niles'
Register, December 12, 1818, XV. 283.
a Ibid., October 24, 1818, XV. 130.
33 The reasoning by which the legality of such a tax is proved is interesting.
The Ordinance of 1787 provided that no tax should be imposed upon lands the
property of the United States ; the existence of this provision showed that without
it the states might have taxed these lands or other property of the United States
not expressly exempted. They therefore had a right to tax capital invested
in the stock of a bank chartered by the federal government unless a stipulation
Taxation of the Second U. S. Bank by Ohio 319
message to the legislature at the opening of the session of 1818-
1819, the governor discussed the banking situation at length, and
referred as follows to the Bank of the United States:
Since the incorporation of the Bank of the United States, and since
the passage of the present law of this state against unauthorized banking
companies, that institution has established, without asking leave, two
agencies . . . whose course of proceeding, the banks loudly complain,
cramps the operations, and diminishes the profits of the latter, as well
as impairs the state revenues arising from these sources. . . . But
whether the branches remain among us, of right, or by permission, and
while the state banks are subjected to the imposition of taxes, or an
equivalent, there appears no evident reason why those branches should
be exempt. Their exemption would be a partiality, unjust to the local
banks."
The house committee, finally, to whom the matter was referred
at the previous session for report, recommended "the propriety of
providing by law, that if the branches established within this state
shall remain here and transact business, beyond a certain day, a
tax shall be assessed and collected of $50,000 annually upon each
branch ", 35 In accordance with this recommendation a bill was in-
troduced into the legislature and was finally enacted into law on
February 8, 1819. " Whereas the president and directors of the
Bank of the United States have established two offices of discount
and deposit in this State, at which they transact banking business, by
loaning money and issuing bills, and by trading in notes and bills ;
and whereas it is just and necessary that such unlawful banking,
while continued, should be subject to the payment of a tax for the
support of government" — it was provided that if any of these asso-
ciations continued in business after September 1 they should be
taxed, the Bank of the United States $50,000 per annum for each
office, and every other company $10,000. On September 15 of each
year the auditor was to assess these taxes against the companies,
and to make out his warrant to the agent whom he should appoint
to collect the tax. In case of default, the agent was authorized to
levy on the goods of the Bank or its credit; he could seize the
specie or notes, searching the Bank for them. The officers of the
Bank might be put to oath to disclose where the funds were, or they
to the contrary were made. As this had not been done in the case of the Bank
of the United States, the right of the state to tax its branches was undoubted ; and
this was especially true because Ohio taxed her own banks, and if they were
driven out of business by the Bank of the United States, the state would be
deprived of a considerable revenue. Niles' Register, November 7, 181 8, XV.
163-164.
84 Governor's Message, House Journal, 1818-1819, pp. 92, 94.
35 Ibid., 1818-1819, p. 409.
320 Ernest L. Bogart
might be summoned to court and examined, a refusal to answer con-
stituting contempt. Debtors to the Bank must pay the state until the
amount of the tax was reached. The sum collected was to be paid
by the agent to the auditor and by him to the treasurer. The agent
was to have, as his remuneration, two per cent, of the amount col-
lected in specie or notes ; five per cent, of goods taken in execution ;
and ten per cent., if further proceedings were required.
Similar taxes had already been laid on the Bank of the United
States in five other states, namely, Maryland ($15,000), Tennessee
($50,000), Georgia (thirty-one and one-fourth cents on $100
capital), North Carolina ($5,000), and Kentucky ($60,000), while
the constitutions of Indiana in 1816 and of Illinois in 1818 pro-
hibited the establishment of any but state banks within their bound-
aries. The subject was also debated in the legislatures of Virginia,
South Carolina, and New York. 30
As to their constitutional right to levy such a tax, the majority
of the Ohio legislature seems not to have entertained any doubt. 37
For two years they had seen it asserted in other states. Niles,
the determined opponent of the Bank, had urged such action upon
the states and had asserted their constitutional right so to do. 38
Finally, the only case bearing upon this point seemed to justify
this conclusion. This point was urged by an Ohio legislative com-
mittee two years later.
At the period of adopting these measures [they wrote], the consti-
tutional right of the state to levy the tax was doubted by none but those
interested in the bank. . . . During the existence of the old Bank of the
United States, the state of Georgia had asserted this right of taxation,
and actually collected the tax. The bank brought a suit, to recover back
the money, in the federal circuit court of Georgia. This suit was
brought before the supreme court upon a question not directly involving
the power of taxation. The supreme court decided the point before them
in favor of the bank, but upon such grounds that the suit was abandoned,
and the tax submitted to. 8 " When the charter of the present bank was
enacted, it was known that the states claimed, and had practically
39 See Catterall, pp. 64-65.
37 " The state right to tax the institution was strongly asserted, and almost
universally believed in by the people." Chase, Statutes of Ohio, I. 43.
38 "The states should take it up; and tax the mother bank and the branches
out of every resting place except the ten miles square." Niles' Register, February
28, 1818, XIV. 5.
38 The committee evidently refer here to the case of the Bank of the United
States v. Deveaux (5 Cranch, 61), which was decided in 1809. This case involved
the question as to whether the circuit court, in a suit brought by the Bank, had
jurisdiction. The Supreme Court, to which the suit was appealed, held that it did
and remanded the case for further action. It does not appear from this decision
that the bank took any other action to resist the payment of the tax, and there is
no further indication in the federal cases of what was done in the matter.
Taxation of the Second U. S. Bank by Ohio 321
asserted, the right, of taxing it, yet no exemption from the operation
of the power is stipulated by Congress. The natural inference, from the
silence of the charter upon this point, would seem to be, that the power
of the states was recognized, and that Congress was not disposed to
interfere with it. 40
When the law taxing the Bank was passed in February by the
Ohio legislature, its execution was postponed until the September
following, in order that the Bank might have abundant time so
to arrange its business as not to come within the provisions of the
taxing law. By that time it was expected the Bank would have
withdrawn from the state.
The year 1819 was marked by a crisis, the first in the United
States. Its causes are stated by Dewey to have been " in part the
inability of the manufacturing industries to recover a stable footing
after the abnormal growth occasioned by the embargo and the war,
and in part a spirit of speculation developed by the several years
of rapid commercial expansion and bad banking". 41 In the latter
the Bank of the United States was a not inconsiderable factor, and,
while it did not cause the panic, it certainly precipitated it by its
abrupt curtailment of credits. " The Bank was saved and the
people were ruined ", wrote Gouge. 42 In the West the distress was
especially keen. Enormous loans had been made in that section,
which had encouraged the spirit of speculation ; much of the capital
so borrowed had been recklessly managed and badly invested and
could not now be repaid. Much had been loaned to farmers, who
had mortgaged their farms and homes as security, and had pledged
their future production and savings to repay these loans. It was
usual to renew such notes from time to time, and when these
debtors were now called upon to pay they were utterly unable to do
so. In times of crisis such property is always unsalable, and in this
case it had been greatly overvalued, and would not bring even the
amount of the mortgage.
The Ohio banks made a noble effort to maintain specie pay-
ments, but with only partial success. Early in January, 1819, Niles
wrote :
Two or three banks in Ohio still pay specie — but there are very few
of their notes in circulation. This state is a prey to Jew-brokers and
bank directors, more, perhaps, than any other. ... To retire their notes
from circulation and make a shew of solvency, it is said that some of
40 " Report of the Joint Committee to whom was referred the report of the
auditor relating to the tax collected from the Bank of the United States, December
12, 1820." House Journal, 1820-1821, p. m.
41 Dewey, Financial History of the United States, p. 1 66.
42 W. M. Gouge, The Curse of Paper-Money and Banking (ed. Cobbett, Lon-
don, 1833), p. 71.
322 Ernest L. Bogart
the banks have given written obligations to the branches of the U. S.
Bank, for very large amounts."
Owing to the adverse balance of trade and the drain of specie from
the western country by the Bank of the United States, it was diffi-
cult to keep sufficient specie in the state. " It is estimated ", wrote
Niles in June, 44 " that 800,000 dollars in specie have been drawn
from Ohio within the last twelve months, for the bank of the
United States." Nevertheless, in midsummer there were still eight
specie-paying banks in the state. 45 Three weeks later the number
was reduced still further. 46 For these troubles the Bank of the
United States was held to be primarily responsible. 47
There was owed to the Bank of the United States in Ohio and
Kentucky on April 1, 1819, the sum of $6,351,120, which was re-
duced less than $1,000,000 three years later. The Bank con-
sequently was compelled to foreclose its mortgages and realize upon
them. " As a consequence of the transfer of real estate, the bank
owned a large part of Cincinnati : hotels, coffee-houses, warehouses,
stores, stables, iron foundries, residences, vacant lots." 48 Owing
to the rapid appreciation in the value of property, the final losses to
the Bank were very slight, amounting on August 30, 1822, to but
$94,156 in Cincinnati and $25,579 m Chillicothe. The effect of this
upon the former owners of these valuable properties may easily be
imagined. There was moreover a general spirit of hostility to the
Bank in the West, where it was regarded as an intruder, often
against the constitution and statutes of a state, possessed of superior
privileges, paying no taxes, and acting as mentor to the local banks.
In the meantime, while the feeling of hostility to the Bank was
rising higher, the case of McCulloch v. Maryland was decided on
** Niles' Register, January 9, 1819, XV. 361.
"Ibid., June 26, 1819, XVI. 298.
K Ibid., August 14, 1819, XVI. 405. Eight specie-paying banks were reported
a year later. Ibid., May 20, 1820, XVIII. 224.
** " Of twenty-five banks in Ohio, the Western Herald informs us, there are
at present but six or seven which redeem their paper with specie." Ibid., August
28, 1819, XVI. 484-
" The governor put the situation very temperately and correctly in his mes-
sage to the legislature in December, 1819 : " Very little doubt appears to be enter-
tained, that this pecuniary embarrassment has been hastened, by the operations
of the Bank of the United States ; but the leading cause, I suspect, will be more
successfully sought, in the too expensive and injudicious use of their credit
formerly made by some of the borrowers with hopes too sanguine to be realized
in times like the present. These causes combined with an adverse balance of
trade, and the fallen price of country produce, have conspired to prevent these
institutions from redeeming their bills and preserving their credit, and circula-
tion." House Journal, 1820, p. 10.
18 Catterall, p. 67.
Taxation of the Second U. S. Bank by Ohio 323
March 7, 1819, to the effect that the states were debarred by the
federal Constitution from levying a tax upon a bank chartered by
Congress. 49 The Ohio law, however, directing the auditor of the
state to levy and collect the tax of $50,000 on each branch of the
Bank of the United States that should continue to transact business
within the state after September 1, remained unrepealed. This law
the auditor considered imperative on himself, in which opinion he
was upheld by the governor, and he deemed it his duty under the
law to execute its provisions, unless enjoined by proper authority. 50
The auditor was really placed in an embarrassing predicament, but
held that as a state officer his first duty was to carry out the man-
dates of the state laws. 51 On September 11 he was served with a
notice that application would be made to enjoin the proceedings
under the tax law. On the morning of September 15 the auditor
was further served with a copy of a petition in chancery, praying
that he be enjoined from charging the bank with the proposed tax,
and also with a subpoena from the same court to appear to answer
the petition on the first Monday of the following January. As no
one of these documents constituted an injunction upon his proceed-
ings under the law, the auditor issued his warrant to John L. Harper,
for the collection of the tax.
Before delivering this warrant, however, the auditor submitted
the various papers to the secretary of state and asked him to secure
legal advice as to whether they did operate as an injunction. In
reply he received the written opinion of several lawyers "that it
did not appear that there was any order of court allowing an in-
junction, or any suit of injunction, or indeed any document whereby
the defendant can be charged with notice of the contents of the
petition ", 52 Accordingly he delivered the warrant to Harper with
4, 4 Wheaton, 316. The text of the decision is given in full in Niles' Register,
March 20, 1819, XVI. 68.
50 Auditor's rep., December 9, 1819, in House Journal, 1820, p. 38.
51 Most of the accounts of the taxation of the Bank of the United States by
Ohio seem to proceed on the theory that the action of Ohio was brought about
by, and followed, the handing down of the decision of the Supreme Court in
McCulloch v. Maryland. Thus McMaster (History, IV. 498) says it " was imme-
diately defied and set at naught by Ohio ", and later (p. 504) speaks of the
" condition of depression and desperation ... in Ohio ". Schouler (History, III.
119, 246) states that "the decision was bitterly repudiated by the State officials,
. . . who had attempted to levy a tax in defiance of its mandate ". The writer is
convinced, on the other hand, by his study of the documents, that the people of
Ohio had a very good case against the Bank, that they were convinced of the
justice of their position, and that they proceeded to test their rights in con-
stitutional, legal, and peaceful ways. It certainly is unnecessary to stigmatize the
conduct of the state as "senseless warfare", as does Schouler (History, III. 246).
52 Ibid., p. 40. The accounts usually state that the auditor defied the injunc-
tion. Thus Hildreth (History, VI. 680) declares that "an injunction from the
324 Ernest L. Bogart
instructions to proceed. The latter went to the branch at Chilli-
cothe on September 17, and upon the cashier's refusal to pay the tax ;
jumped over the counter, "and with force and violence . . . did
take from the said office money and notes to the amount of upwards
of one hundred and twenty thousand dollars ". 5S Five days later
the amount in excess of $100,000 was restored to the Bank. The
money thus taken was paid into the Bank of Chillicothe after bank-
ing hours and kept there over night. The next day it was taken to
Columbus, and $98,000 was deposited in the Franklin Bank of that
city to the credit of H. M. Curry, the treasurer of the state, the other
$2,000 being retained by Harper as his fee.
Meanwhile the injunction asked for had been served upon Os-
born, the auditor, on September 18, in which he was directed not to
collect the tax, nor pay it out if collected ; he was also requested by
the Bank to return the money collected. This he refused to do, as
the matter had now passed out of his control. 54 Soon after this
Harper and Orr, one of the latter's assistants, were arrested at the
suit of the Bank in an action at law for the recovery of the money
taken by them. Bail was required to double the amount of the
money collected, and an action for habeas corpus having failed,
they remained in prison until the following January, when they were
released by the federal circuit court on the ground that the arrest
was irregular. 55 On September 22 an injunction was granted by
Judge C. W. Byrd, the United States district judge, restraining the
auditor, the treasurer, and the depository bank from making any dis-
position of the moneys collected as a tax from the Bank. 56 In De-
cember Osborn made an elaborate report of all these proceedings to
the legislature, which ordered five hundred copies of the report and
accompanying documents printed for distribution. 57
After collecting the tax from the branch at Chillicothe Harper
went to Cincinnati, armed with a similar warrant from Osborn, but
was assured that the Cincinnati branch had discontinued business
and was maintaining an agency only for the purpose of redeeming
its paper. Consequently no effort was made to execute the warrant
and collect the tax at this place.
Circuit Court of the United States was disregarded ", and even Sumner (History
of Banking in the United States, p. 153), careful and accurate as he is in most
respects, errs in stating that an injunction was served on the auditor before the
collection of the tax.
53 Petition of the Bank of the United States, etc., in House Journal, 1820-
1821, p. 53. The exact sum taken was $120,425, of which $7,930 was a treasury
deposit belonging to the United States.
M Aud. rep., House Journal, 1820, p. 41.
15 For an account of the irregularity in their arrest, see McMaster, IV. 499.
56 House Journal, 1819-1820, p. 61.
"Ibid., 1820-1821, p. 38-44.
Taxation of the Second U. S. Bank by Ohio 325
On November 23, 1819, John Marshall, chief justice, granted an
injunction against Osborn, Curry, and others, restraining them from
making any disposition of the moneys collected as a tax from the
Bank of the United States. The following January 58 application
was made in the federal circuit court for an attachment against
Osborn and Harper for contempt in disobeying the injunction of the
previous September; but after argument the court decided to hold
the case under advisement until the following September, on account
of the important constitutional questions involved. During the in-
terval a new state treasurer, Sullivan, succeeded Curry. When the
case finally came up for trial in September, 1821, the latter in his
answer stated that he had received $98,000 from Harper, which he
had held separate and unused, and had delivered to his successor.
By an arrangement of the counsel of both parties a decree was
entered, ordering Sullivan to restore the amount of the tax together
with interest on $19,830,°° but providing that the interest, the $2,000
withheld by Harper as his fee, and the costs be appealed for final
decision to the Supreme Court of the United States. A perpetual
injunction was also granted against the collection of any tax in
future under the tax law of Ohio.
Sullivan contended that he could pay out funds in the treasury
only upon the warrant of the auditor, but as no appropriation act
had been passed for that purpose the auditor had no legal or con-
stitutional authority to draw upon the treasury. Consequently he
refused to obey the decree. The court placed him in custody of the
marshal, and issued a writ of sequestration against all his property.
Acting under this authority the commissioners named in the writ
took from him the keys of the treasury, and entering the vault re-
covered the $98,000 originally seized by Harper as the tax. 60 This
was taken into court, and there delivered to the agents of the Bank.
An appeal was taken, but it was agreed that the appeal should
operate on the $2,000 yet lacking. Not until 1824 did the Supreme
Court finally hand down its decision.
Let us now return from this account of court proceedings to the
attitude of the people and the legislature. We have seen the effects
of the crisis of 1819 upon the local banks and the people of Ohio,
and the part which the Bank of the United States played in the
58 January 5, 1820.
a Of the $100,000 taken, this amount was in specie, and $80,170 was in
bank-notes. Aud. rep., House Journal, 1820, p. 41.
""Treas. rep., ibid., 1 821-1822, p. 49. It does not appear that in these actions
there was any intention to resist the orders of the court, but rather to insist upon
the technical correctness of each step. The state officials were after all bound by
state laws, and were justified in construing their meaning strictly.
326 Ernest L. Bog art
financial troubles of this period. The results of the crisis and result-
ing depression were widespread throughout the entire Mississippi
Valley. In most of the states, as Tennessee, Kentucky, Illinois,
Missouri, etc., relief and stay laws were passed for the benefit of
debtors. Ohio, on the other hand, enacted stringent laws in 1819
and 1820 to compel banks to meet their obligations, though they
were not effective in maintaining specie payments on the part of all
the banks. 61 And this was done during a period when the falling
prices made it additionally difficult for the farmers of Ohio to
market their produce at a remunerative price. In the autumn elec-
tions of 1819 the taxation of the Bank was the most important issue,
and at this time the opponents of the Bank were generally victorious ;
in one case a candidate received 1591 votes to 369 for his opponent
(pro-Bank) ; in another, 1350 to 640, etc. 62 - The legislature of
1819-1820, however, took no further legislative action, as the matter
wjas before the courts and wholly unsettled during the period of
its session.
The legislature of 1 820-1 821 was all but unanimous against the
Bank, and early in the session adopted a report giving utterance to
" Some of the banks went out of business, the capital of the state banks de-
clining from $2,003,969 in 1817 to $1,697,463 in 1819 (Niles' Register, March 25,
1820, XVIII. 77-78). In the latter year the circulation amounted to $1,203,869,
the public deposits to $191,454, and the private deposits to $263,000; against these
liabilities they held specie to the amount of $433,612, or 26 per cent., which rep-
resented a stronger position than that of 1818 (supra, p. 316). But the reserve
was not equally distributed ; eight of the banks succeeded in maintaining specie
payments even through the crisis, but the notes of the rest were in varied stages
of depreciation. This is well illustrated by the character of the funds held by the
state treasury. A committee appointed " to enquire into the state of the funds
in the treasury" reported (House Journal, 1820, p. 307) that $141,336 consisted
of bank-notes, of which $78,180 were those issued by the Bank of the United
States, $21,210 of specie, and the balance, or $51,850, of credits in banks, paper
representing loans, and redeemed auditor's bills. " The nature of a part of the
funds in the treasury", wrote the governor a year later (House Journal, 1821, p.
13), "has caused some difficulty, in transacting the business of that department.
. . . There seems, however, reason to hope, that the greater part of these notes
can be realized, at no very distant period. . . . Some of the banks, in doubtful
credit at the last session, of the legislature, are said to be engaged in closing
their concerns ; and a depreciated currency appears at this time, to be confined
to a small portion of the state ; but considerable distress is generally experienced,
from the deficiency of a good medium of exchange. . . . [There is] danger of
depreciation, so long as the debts contracted to the eastern merchants, to the
Bank of the United States, and at the land offices (debts equally required to be
drawn from the state) shall remain to any considerable extent unsatisfied ; and
money rather than security will probably continue to be required in negotiations,
till the payment shall be nearly completed — a consummation which the extremely
low price on our produce and the heavy charge on its transportation, delay and
render difficult."
62 Niles' Register, October 30, 1819, XVII. 139.
Taxation of the Second U. S. Bank by Ohio 327
high state-rights doctrines. This is referred to by several writers
as evidence of strong hostility to the centralizing tendency of the
federal government and of a reaction towards state sovereignty. 63
It must be clear, however, that the legislature and people of Ohio
were actuated in their attitude towards the Bank by no political
theories, but rather by an economic situation. In so far as appeal
was made to theories of government, it was merely to find con-
stitutional justification for economic motives by which they were
guided. That Ohio was not hostile to federal action even within the
state limits, is seen by her request to Congress to assist in building
her canals, made during the very period when the Bank case was
being disputed ; by her approval of the Cumberland Road ; by her
position on the tariff, all the votes of Ohio congressmen being cast
in favor of protection in both 1816 and 1824; and by her attitude
towards the disposition and taxation of the public lands. In all
these cases her position was determined by the economic ad-
vantages to be obtained, and not by any a priori theories of political
relations.
On December 12, 1820, the report just mentioned was made by a
joint committee of the legislature, " to whom was referred the report
of the auditor 64 relating to the tax collected from the Bank of the
United States ", 65 Owing to its importance a brief statement of the
main arguments may be presented. After reviewing the trans-
actions of the Bank and the passage of the tax law, with the result-
ing suits, the committee hold that though the state auditor and
treasurer were made defendants in suits brought by the Bank, it was
in their official capacity as agents of the state. But, according to
the Eleventh Amendment, a state cannot be sued, hence the suits
had no standing, especially in a circuit court. 66 The committee
declare that they are aware of the doctrine that the federal courts
are exclusively vested with jurisdiction to declare, in the last resort,
63 E. g., Ames, State Documents on Federal Relations, no. III., p. 5 ; Turner,
Rise of the New West, p. 300, which follows the account of Ames.
64 See supra, p. 324.
85 House Journal, 1820-1821, pp. 98-132. The text of the report and seven reso-
lutions is also given in Senate Documents, 16 Cong., 2 sess., no. 72; in Executive
Documents, VI., no. 88; in Annals of Congress, 16 Cong., 2 sess., pp. 1686-1714;
and in American State Papers, Misc., II. 643-654. Extracts from the reports,
with the first seven resolutions, are printed in Ames, State Documents on Federal
Relations, no. III., pp. 6-13. The resolutions alone are given in Niles, XIX. 339-
341. In all these, however, the first seven resolutions only are given, the eighth
and last being omitted. The House Journal gives eight, as described below.
King {Ohio, 337) states that the report was drawn up by Charles Hammond, the
counsel of the state in the Bank proceedings.
86 Apparently the fact that the restraining injunction had been granted by
the circuit court rankled more than the decision of McCulloch v. Maryland.
328 Ernest L. Bogart
the true interpretation of the Constitution of the United States, but
" to this doctrine, in the latitude contended for, they can never give
their assent". The committee quote with approval the Kentucky
and Virginia Resolutions, which they maintain that the states and
people recognized in the elections of 1800.
The committee then take up for examination and review the
"case of Maryland and M'Colloch ". "And upon the promulga-
tion of this decision it is maintained that it became the duty of the
state and its officers to acquiesce, and treat the act of the legislature
as a dead letter. The committee have considered this position, and
are not satisfied that it is a correct one." They examine at great
length the reasoning in McCulloch v. Maryland and criticize it
adversely. The power of Congress to charter a bank is admitted,
but the claim is made that such a bank is a private corporation, not
a means of government, and hence its business may be controlled
by the states. The conclusion is finally reached after a lengthy
refutation, that " a power in the states to tax, or even to prohibit a
trade in bills of exchange and gold and silver bullion, is not a
power to destroy the corporate franchises of the Bank of the
United States. . . . The power to tax their trade, is not a power to
destroy the corporation." In the opinion of the committee the
Bank of the United States is a mere private corporation of trade,
and as such its trade and business must be subject to the taxing
power of the state. In reply to the argument that the tax is
excessive in amount and therefore unjust, the committee urge that
it was levied as a penalty, and it was not supposed the Bank would
venture to incur it, but would withdraw its branches.
However, the committee recommend a compromise : if the Bank
will discontinue the suits, and withdraw the branches from the
state, the amount of the tax shall be refunded. But they urge that
the general assembly do not stop here. The reputation of the state
has been assailed throughout the United States, and the nature of
the controversy, and her true course of conduct have been very
much misunderstood. The general assembly should therefore take
measures to vindicate the character of the state, and also for
awakening the attention of the separate states to the consequences
that may result from the doctrines of the federal courts. And as
the compromise may not be accepted, they should assert and main-
tain the rights of the state, by all constitutional means within their
power.
Since the exemptions claimed by the bank are sustained upon the
proposition that the power that created it must have the power to pre-
serve it, there would seem to be a strict propriety in putting the creating-
Taxation of the Second U. S. Bank by Ohio 329
power to the exercise of this preserving power, and thus ascertaining
distinctly whether the executive and legislative departments of the gov-
ernment of the Union, will recognize, sustain, and enforce the doctrine
of the judicial department.
[For this purpose the committee recommend the outlawry of the
Bank and the withdrawal from it of legal processes and remedies.]
The adoption of these measures will leave the bank exclusively, to
the protection of the federal government, and its constitutional power
to preserve it in the sense maintained by the supreme court may thus be
fairly, peaceably, and constitutionally tested.
The committee conclude by recommending the adoption of eight
resolutions: (1) an affirmation of the Kentucky and Virginia
Resolutions (passed 59 to 7) ; (2) a protest against the actions of
the circuit court (59 to 7) ; (3) assertion of the right to tax any
private corporation of trade incorporated by Congress and located
within a state (unanimous) ; (4) assertion that the Bank of the
United States is a private corporation of trade, the capital and
business of which may be legally taxed in any state where they may
be found (unanimous) ; (5) protest against the doctrine that the
political rights of states may be settled in the Supreme Court, in
cases contrived between individuals (64 to 1) ; (6) the report and
resolutions to be transmitted to other states for their opinion
(unanimous) ; (7) also to the President and Congress (unanimous) ;
(8) that bills be prepared and brought in, to carry out the recom-
mendations of the report. The following day the house ordered
1,000 copies of the report and accompanying documents printed and
bound in pamphlet form ; 67 at the same time the senate also ordered
650 copies for its use. 68
Six members of the minority in the house subsequently drew up
a report protesting against this report. 69 They contended that the
constitutional right of Congress to establish the Bank of the United
States was " absolutely at rest ". They protested against the view
that the suits were contrary to the Eleventh Amendment. And
finally they held that the tax of $100,000 was unjust, as shown
by the desire of the legislature to compromise.
In pursuance of the recommendations of the majority report,
two acts were passed by the legislature, threatening reprisals on the
one hand and suggesting concessions on the other. The first of
these was " an act to withdraw from the Bank of the United States
the protection and aid of the laws of this state, in certain cases ". T0
6 ' House Journal, 1820-1821, p. 134.
08 Senate Journal, 1820-1821, p. 119.
69 February 2, 1821. House Journal, 1820-1821, pp. 386-393.
"Act of January 29, 1821. Chase, II. 1185. The house passed this act by a
vote of 47 to 11. House Journal, 1820-1821, p. 324.
330 Ernest L. Bogart
Sheriffs and jailers shall not, after September i next, take into
custody persons arrested at the suit of the Bank. Officers of
justice shall not receive acknowledgments for the Bank. Notaries
public shall not make protest of notes payable to the Bank. Heavy
penalties were provided for violating the law. The last section of
the act provided, however, for the suspension of these provisions
under certain conditions. If the Bank would discontinue its suits
against the state officers, and would in future submit to an annual
tax of 4 per cent, on the dividends of its business in Ohio ; n or if
it would withdraw its branches, then the act should be suspended.
Four days later a second act was passed setting forth still more
explicitly the terms upon which the state was willing to com-
promise. 72 The legislature stated its willingness to refund the
excess of the tax over 4 per cent, on the dividends. Whenever the
Bank will withdraw its suits against the state officers and will submit
to the payment of a tax equal to 4 per cent, on its dividends, or if
the Bank will withdraw its branches from the state, $90,000 will be
refunded to it. And in future a tax of $2,500 shall be collected
annually as a tax, or else 4 per cent, on the dividends. No attention
was paid to these proposals by the Bank, and the act of outlawry
accordingly went into effect the following September. It does not
seem to have been observed, however, but remained a dead letter
on the statute books until it was finally repealed five years later, on
January 18, 1826. 73
No further legislation was enacted relative to the Bank of the
United States. In 1822 a resolution to repeal the law levying the
tax on the branches of the Bank of the United States was rejected in
the senate, 27 to 6. 74 By this time the bad effects of the crisis of
1819 had largely passed away, the necessary liquidation had taken
place, and prices were rising again. The attention of the people
and the legislature was moreover being absorbed by other topics of
even greater interest, namely, schools and canals. When the case
of Osborn v. the Bank of the United States came up on appeal be-
fore the Supreme Court at the February term, 1824, there was no
excitement. The decree of the circuit court was affirmed, except
that interest should not be paid on the coin part of the money taken. 75
71 This was the rate of taxation on Ohio banks.
72 Act of February 2, 1821. Chase, II. n 98.
73 Ohio Laws, ch. 675, § 1.
** Niles' Register, January 5, 1822, XXI. 303.
' 5 March 19, 1824. 9 Wheaton, 739.
Taxation of the Second U. S. Bank by Ohio 331
As soon as the decision was announced Ohio acquiesced fully, and
made no further effort to contest the point at issue. 78
Throughout these proceedings [wrote Salmon P. Chase, then a
young lawyer in Cincinnati] the state and her officers manifested the
utmost respect for the constitutional tribunals of the country. They
believed, conscientiously, that the state possessed the right to tax the
bank, and measures were taken for the exercise and enforcement of
that right. But in no instance was any indignity offered to any judicial
tribunal, nor was resistance, in any case, opposed to judicial process.
The state was true to the principles which had characterized her former
course ; and when the supreme court decided against her, she exhibited
an example of dignified and unconstrained submission to the judgment
of that high arbiter."
Ernest L. Bogart.
** It is not clear what is meant by the allegation in Turner, Rise of the New
West, p. 300, to the effect that Ohio " even persisted in her resistance after the
decision (Osborn vs. Bank of the U. S., 1824) against the state". I have not been
able to find any warrant for this statement.
" Chase's Statutes of Ohio, I. 43.
AM. HIST. REV., VOL XVII. — 22.
